Rhythm Pharmaceuticals, Inc. (RYTM) Earnings Call Transcript & Summary

All right. Good afternoon, everyone, and thanks for joining us at the Morgan Stanley Global Healthcare Conference. I'm Mike Ulz, one of the biotech analysts here. And it's my pleasure to introduce David Meeker, President and CEO of Rhythm Pharmaceuticals. And just as a quick reminder, the format for today is a fireside chat. But if anyone in the audience has a question, please raise your hand, and we'll try and address it in our discussion. Before we get started, I just need to read a quick disclosure. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. And with that, maybe I'll hand it over to David to make some introductory comments, and thanks for sharing your time with us today.

Yes. Thanks, Mike. Yes. So just to set the stage on Rhythm a bit. It's a good moment for the company, for those who are following. We like to set the company framework up, getting people to think about 3 pillars. Obviously, we're working on the melanocortin-4 pathway, our first approved drug IMCIVREE first-generation product was approved in 2020. It's now approved in a couple of genetic, Bardet-Biedl syndrome in 2022 and most recently, HO in the spring of this year. So the 3 pillars we're focused on are a genetic pillar, and we think there's a number of genetic causes of impaired signaling through the melanocortin-4 pathway. We did the EMANATE trial and the DAYBREAK trials, which were not positive, but -- they provide us a lot of information and I think gave us a sense of how we're going to tackle that pillar next, which is taking the genes of most -- of greatest interest and focusing on trying to determine the variants that have true loss of function because with that understanding, then you can run those trials with a much higher probability of success. I think we're pretty confident that the biology, of course, is going to work there. The middle pillar is hypothalamic obesity, 10,000 patients, significant opportunity. I'm sure we'll talk a little bit more about that. Launch is underway. And then the third pillar is Prader-Willi. And this is -- we released some preliminary data out of a study, open-label study by Dr. Miller using setmelanotide. We've told the world, which we will, we'll update everybody on which assets specifically we'll take into Phase III and then try to give people some sense of time line before the end of the year. Prader-Willi is, as I said, third pillar, and it's a really -- it's a significant opportunity. I think we're quite convinced that the biology is real and works there, and we plan to invest accordingly. And so that will be a major effort for Rhythm going forward from -- in 2027.

Great. Thanks for that introduction, David, and maybe we'll start with the middle pillar, which is HO and maybe just give us a brief background there maybe on the disease, the unmet need and how IMCIVREE helps these patients.

Yes. So HO is interesting. I'll contrast it with Bardet-Biedl syndrome, our first approval in 2022, which is as I said, about 5,000 patients and really a classic ultra-rare disease. It's a genetic disease. It's a syndrome. These patients have classic ultra-rare disease challenges trying to get to a diagnosis, very few experts. There was only one center of excellence in the U.S. when we launched. We've now helped the development of about 5 other centers. But that's a world where you continue to find patients and you'll continue to find patients for the next decade, 2 decades. I mean it will just -- we expect that opportunity to grow and grow steadily, but a modest pace, and it's driven very much by -- it just takes time for these patients to come to awareness. And part of the challenge is there's not a concentrated way to tackle that disease. They are often cared for by primary care physicians. There's no dedicated specialist who's taking care of them, although they may see any number of specialists to get to a diagnosis. There's not a concentrated point which -- where they're being taken care of uniformly. HO in contrast, which is this entity most commonly due to occurring when patients who have a tumor in that area of the brain, hypothalamus and pituitary in that region, they get resected. These are benign tumors. But in the process of that treatment, resection and/or radiation, the hypothalamus, that part of the hypothalamus gets damaged where this pathway sits. And so they lose the signaling, they have a loss of alpha-melanocyte-stimulating hormone, which is the key signaling hormone in this pathway. And they literally come off the surgical table hungry and are gaining a pound or 2 a week. I mean that's a classic presentation post surgery. There's a very clear before and after to these patients. And so Up until now, patients going into surgery, about 80%, 85% of them will have one or more hormonal deficiency, hypothyroid, adrenal insufficiency, et cetera. And they are educated on that when they go into surgery. I mean the surgical team will tell them, you may develop hypothyroidism, but we can treat that. We can replace your thyroid medicine. It's okay. As a rule, they are not told that hypothalamic obesity is a possibility, and that occurs in about 50% of the patients. Part of the reason they're historically not told is, A, the surgical team may not be so cognizant of it. Secondly, even if they are, it's one of those situations where they tell the patient about a potential complication and the patient and their family go, okay, so what do we do if that happens? Well, we don't really have a treatment. And so you've created a level of anxiety in the patient and their family without being able to give them some reassurance that you have a way of dealing with that. So that's the world that we've entered into, really a devastating complication. And the beauty of this treatment is in HO, it's really a pure -- the drug itself taught us what was the cause of that disease. It was a little bit -- I think there are a number of hypotheses, not so clear going into our trials, but the response to a precision medicine, this melanocortin-4 receptor agonist literally a hormonal replacement taught the world that, that is the underlying biology for this. And so that's where we are. So the team out of the gate, what's been surprising as we get a little bit surprising to me, maybe it shouldn't be based on what I just told you is the level of awareness even among endocrinologists is, I would say, modest. It's not like they're taught about this during fellowship training and the like. It's a relatively new disease back to being defined as much by the medication -- the medication has really given definition to that and define it as a distinct entity, number one. Number two, many endocrinologists don't like treating obesity. Obesity treatments become very much writing scripts for GLP-1s. And so they'll manage other endocrine problems, but I don't do obesity and they'll send the patient to an obesity clinic or some other part of the organization. And so this part of their disease may well be outsourced, if you will, to another part of the system and the like. And so we're entering this where we've got to create awareness. We've got to help create more experts. And like I said, I think there's a prevalent population here, which is out there and not just not carrying a diagnosis. Those are the classic rare disease challenges. On the upside, this is a classic specialty opportunity. Unlike Bardet-Biedl, which is dispersed and being cared for maybe by very -- multiple different specialists and/or primary care physicians, these patients will reliably pass through and/or be primarily cared for by an endocrinologist. So as a company, we approach this in a very different way, which is we can cover all endocrinologists. So we had a sales force of about 16 people for Bardet-Biedl because that was not the strategy. We've hired 42 dedicated salespeople for HO because the goal will be to knock on certainly all of the top-tier endocrinologists, which is about half of that 10,000 number as a start. So a lot of advantages, some residual challenges. And of course, we're positive about our first quarter.

Yes. Yes. So maybe we can talk about the early launch trends. You shared some promising start forms. So maybe talk about that.

Yes. So at the first quarter, we had about -- not about, we have about 400-plus start forms that were written by 300 physicians. And so A, people ask, is that -- how is that relative to expectations? Going into a launch, these things are really hard to calibrate, but that was a really positive signal. I think it told us that there was a high level of interest. People were willing to write scripts. The 300 docs who wrote those 400 scripts also tells us that it wasn't a small number of docs who were believers in the rest of the world, not that they wrote a disproportionate number. But we have, I think, very broad-based uptake. Since the first quarter, we had the New England Journal of Medicine article published. I think that's the kind of addition to the whole picture that makes a big difference. It's not that often that endocrinology articles get published in the New England Journal of Medicine, so they get a disproportionate amount of attention. And so again, I think all of the signals we've had before is that we're very positive about the uptake here, but also very appreciative of the fact that we are early and we have a lot of work to do on the education side, particularly, like I said, that the endocrinologists and for sure, in the community endocrinology set.

Can you just talk about the early physician feedback? And since education is part of your strategy, maybe walk us through how that works? Is it pretty easy to -- for physicians to understand and then, oh, I have patients, and it's a pretty easy -- it's just a matter of getting to the numbers? Or how is that looking?

Yes. Easy is a word. It's not the right word, but no, it's fair. So the conversations, this is easy to describe, right? The classic presentation, which is you have an incident event, you had your surgery, you had trauma or there's an incident event and before and after something changed, rapidly gaining weight, you have these associated pituitary insufficiency problems. So when you talk to an endocrinologist and you say, do you have patients with HO, they may or may not say, I have some who are diagnosed. But invariably, they will say, but I have some patients who fit that clinical phenotype. I just haven't given my diagnosis. I need to get them back in and have that conversation with them and the like. So when we gave you a number last fall of about 2,000 patients who we had -- the field teams had identified through their interactions with physicians in the field, the majority of that 2,000 number were in the suspected category, not patients who carried a diagnosis of HO. And so that's what's happened. And like I said, we're in the process of some of those patients coming in. The second issue here is maybe not surprisingly, getting into the endocrinologist office is not straightforward. And so I think the general reaction has been, I will bring this up with them when I see them next at their next scheduled appointment. So they're not out there actively calling these patients in, just is what it is. I think their practices are pretty tight. So that's been, I think, the second major challenge here is creating that sense of urgency and the ability to have patients pulled back in, but...

And maybe you can talk about just payer adoption, any payer pushback? There was talk before the launch of maybe step edits. What's kind of the latest there?

Yes. So no step edits. We didn't -- have not had step edits with Bardet-Biedl syndrome. And we haven't had here -- in a rare disease world, I think the payer world tends to adhere very closely to the label. So -- and of course, that was not part of our trial number one. Number two, we did have, for example, the GLP world would be a common question about will you be step edited through a GLP? And as I said, they adhere to the label one. But two, about 25% of the patients in our 140-patient Phase III trial were on a GLP, either historically on a GLP, about half of that number or continuing on a GLP during the trial. We had most of their curves before the trial and then what happened. And what you could see very clearly was if you give most people a GLP, they will have some weight loss. I mean it's just -- that mechanism creates an aversion, people at least -- you will lose some weight. What turns out is if you have a deficit in this pathway, you may lose some weight and plateau well above where you want to be. You may lose some weight for a while and then start to regain. And that was very much the pattern of all the patients with a history of GLP use. And then when they went on setmelanotide and IMCIVREE in that case, they had a very consistent, if not even greater response to the drug as everybody else in the trial. So we have that data to support it. As I said, payers tend to follow the label, so no step edits.

Makes sense. And you mentioned maybe 10,000 -- or your estimate is 10,000 patients in the U.S. and you, prior to the launch, had about sort of 2,000 identified or suspected. I guess how quickly can you sort of increase that 2,000 number? What are the hurdles? You mentioned some already, but what's the key hurdle?

Yes. I mean that's outlined the most significant hurdles there. The 2,000 number has increased significantly since last September. We're a year later, not surprisingly. We won't update that number. Again, it's a softer number. It's a number -- we gave you that similar kind of number at the start of the BBS launch. We gave it to you for HO, the world. Now we're into the launch, the start forms, revenues become a much better metric and that softer number, we probably won't update. But -- what's interesting and is today's world, not surprisingly with all the tools that you have, claims analysis, the ability to follow patients on their trajectory through the health care system by tokenizing them. And you can go -- we have a much better sense as to what we might expect when we go into a physician's office, like who they -- how many patients they might be caring for. We don't know who the patients are. But -- so it supercharges that conversation literally. And we found the feedback from the field has been that when they go in, the conversations they're having are matching their expectations in terms of what they thought that physician might have and the like. And so those are huge advantages when you're trying to launch.

You mentioned start forms. And over time, revenues are going to be a good way to sort of think about how the launch is progressing. But I guess 2 questions there. Will you continue to share start forms? And do you think you might provide some revenue guidance at some point in the future?

So we will definitely continue to share start forms for the foreseeable future. I think what we did with BBS is once revenues became a more reliable metric, they capture sort of all parts of the dynamic. We stopped giving start forms. So we won't do that indefinitely, but we will for the -- certainly the near term. Of course, the revenues will continue to keep up there. Sorry, what was the second part of the question?

Guidance.

Guidance, yes, that's no, it's hard to do in these. And historically, we haven't done it. What we've tried to do is help people understand rare disease launches -- we've used the word lumpy in the past. I mean it's just a function of you're dealing with smaller populations. There's a variety of different reasons why things may go up and down in a quarter. And so we've just tried to get people to not be completely quarter-on-quarter focused, but look at the trajectory over time. And I'll go back and say it again, I think this is an opportunity we expect to grow steadily. We do not expect it to peak, and we'll continue to penetrate into that 10,000. These kind of rare disease opportunities, BBS and probably HO back to it doesn't peak, you don't fully penetrate. So we'll see where we go.

Yes. Makes sense. You're also planning to launch in Japan by the end of this year. I think Europe first half of next year. So maybe just talk about those market opportunities, how they're different from the U.S. And in terms of the strategies, are the strategies different in those geographies?

Yes. Let's start with Japan. I think -- and [ Yann ] will provide a deeper dive at the November earnings call and the overall Japan picture. But high level, Japan, we've said there's about 5,000 to 8,000 patients there as compared to 10,000 patients in the U.S. So on a population basis, it's a more prevalent disease in Japan. I don't totally know why, maybe a higher incidence of craniopharyngiomas in that population, number one. Number two, pretty well organized in the sense of reasonable level of awareness, experts, centers where these surgeries are done. So it's very much think about it as a U.S. kind of -- that would be the comparison here. And the -- we're going to go direct. So we have 50 people on the ground in Japan, and they've been on -- the sales force has been hired prelaunch as was the case in the U.S. And so they've had time to be out in the field and interacting with the clinicians and getting a sense of that market. So we'll update the status of Japan, but approval in August, we'll work through getting our pricing and be ready to launch by the end of the year. The European launch will go country by country in a pretty standard way. Germany should be the first out of the gates early in the first quarter, and then we'll see how we do. We had the market access dossiers basically filed within a week of approval last year. So we were well positioned here, but the process takes time.

Can you maybe talk about just pricing, how to think about it in those 2 geographies relative to the U.S.?

Yes. So Japan pricing, we'll see how we do. We described it as being somewhere -- we expect it to be between the U.S. and Europe pricing. They do reference other countries, including the U.S., of course. So yes, we'll see how we do, but we expect to do no worse than Europe and hopefully somewhat better. The European pricing structure, the nature of that system is each time you come back with a new indication for the same drug, you revisit the pricing discussions and you take a haircut in general with the belief that you're now serving a larger population and therefore, you don't need as much per patient. Our -- that's just -- that's the rule. Our expectation and hope is that we're going in with HO with -- has a very strong data set. And so our goal, obviously, but maybe not unreasonable expectation is that, that haircut will not be significant.

Makes sense. Maybe we can shift gears now to some of your next-generation programs. You have 2 MC4R agonists. So maybe just remind us some of the key advantages of those next-generation programs.

Yes. I mean, so there's 2 obvious ones. So one is convenience and oral -- daily oral or weekly injectable. The second is the hyperpigmentation. So I think we've got good evidence. These are much more specific for the MC4 receptor. They don't hit the MC1 receptor. And just to put that in some context, about 5% to 6% of patients who start the drug discontinue because of hyperpigmentation. So 95% don't, meaning it's not like the biggest problem. But not everybody likes it. Some do, but not everybody likes it even if they stay on drug. And secondly, we don't have a good sense for this. I certainly don't, but I know they are out there. There are patients who are on the sideline who are worried about the increase in pigmentation, getting darker. And that's the reason why they're not starting the drug. And so I think having options out there that don't have hyperpigmentation, there's no physiologic benefit to that. I think will be a significant advantage here. And then, yes, better, more convenient drugs are always welcome.